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Thursday, May 31, 2012

With bad news seemingly rolling in every day about the economic
conditions in one part of the world or another, I can understand the
flight to quality/consistency that has pushed up some well-known names.
But while I understand the appeal of a stock like Beam (NYSE:BEAM),
I still don't want to overpay for an asset that is unlikely to bail me
out with exceptional growth. So while Beam is certainly a global spirits
company worth watching, it will have to pull back a fair bit before the
valuation looks truly appealing.

A few weeks ago, I ran through some of the merits of Brookfield Asset Management (NYSE:BAM)
- a relatively unusual investment vehicle that gives investors exposure
to a wide range of investment assets, such as commercial real estate
and infrastructure assets. Now it's time to consider one of the major
holdings of BAM - Brookfield Infrastructure Partners (NYSE:BIP).

It's hard enough to own a chemical company today, with the volatility
in input costs and the wobbly state of the global economy. Factor in a
sizable sales exposure to Europe, and it's not exactly surprising that Rockwood Holdings (NYSE:ROC)
is off its best levels. Nevertheless, with solid exposure to growth
markets like lithium and advanced ceramics, and management's plans to
monetize non-core assets actively, these shares may be worth a look for
investors that are more aggressive.

Investing in commodities is hard enough, but investing in those
companies that produce intermediate commodities stuck between
uncontrollable cost and uncontrollable prices is even more difficult.
Stocks like Sanderson Farms (Nasdaq:SAFM)
can definitely outperform in periods where protein supplies are scarce
and/or costs suddenly drop, but it's difficult to make long-term money
in stocks like these.

If a company is going to disappoint the Street and lower its guidance for the year, there are worse reasons than those cited by Kirby (NYSE:KEX)
management recently. Part of the shortfall seems to be due to declines
in frac activity in the shale gas fields. The other part seems due to
accelerated maintenance needs on acquired barges - a circumstance that
is disappointing, but doesn't really impact the company's long-term
earnings potential all that significantly.

The words "it's always something" seem especially appropriate for Petrobras (NYSE:PBR) and its investors. While other major oil companies like Exxon Mobil (NYSE:XOM) or BP (NYSE:BP)
would love to have the huge offshore reservoirs that Petrobras has
discovered in recent years, the constant interference of the Brazilian
government makes it an open question as to how much benefit shareholders
will ultimately reap from these assets.
Not only has the Brazilian government shown a willingness to rewrite the
rules as necessary (and at the expense of shareholders), but price
controls in gasoline and diesel make the already-difficult job of
running a refining and marketing business even harder. If that wasn't
enough, local content laws raise the specter of insufficient access to
equipment, while Petrobras battles through the same difficulties in
disappointing production growth and faster-declining fields as most
other energy majors.

There are a lot of odd things about Occidental Petroleum (NYSE:OXY) in the context of the broader energy sector. While investors have generally cheered the decisions of companies like ConocoPhillips (NYSE:COP)
to separate from their refining and/or chemical businesses, Oxy seems
in no particular hurry to match. Likewise, Oxy has a pretty good record
of cash flow production and returns on internal investment, and while
management has received rather generous compensation, they actually seem
to run the business like a business.

Not that any of that has helped all that much lately. Oxy has fallen
along with many other energy companies, and there are the usual worries
here about the company getting stuck between rising production costs and
declining realizations. All of that said, today's valuation suggests
investors ought to take another look at this company as a longer-term
quality energy play.

Wednesday, May 30, 2012

Savvy investors know to love those toll-booth companies out
there--companies that own hard-to-replicate assets that produce quality
cash flow streams and require little short-term strategic support. These
companies can take many forms, from timberland owners like Weyerhaeuser (NYSE:WY) to petroleum transport and storage companies like Enbridge Energy Partners (NYSE:EEP) to diversified investment holding companies like Brookfield Infrastructure (NYSE:BIP).

Macquarie Infrastructure Company LLC (NYSE:MIC) is a company worth exploring within that same theme. While there are cyclical
and long-term structural issues with some of the company's operating
assets, results have been getting better and the company's dividend
paying ability seems to be getting stronger.

Any investor who wants to take a value approach toward tech stocks had
best have some patience. While some quality stocks do give investors a
chance to pick up shares at a reasonable chance, others only get
affordable once the growth opportunities have largely gone away.

It seems unlikely that Cavium's (Nasdaq:CAVM)
growth potential has left the building. Instead, this semiconductor
company has seen the shares sell off sharply on a broad-based slowdown
in its core enterprise and service provider markets. With relatively few
technology peers and sizable addressable markets, this could simply be a
lull in a long-term growth story.

Tuesday, May 29, 2012

Some stocks defy conventional fundamental analysis, and Tiffany (NYSE:TIF)
is one of them. Tiffany has one of the most-recognized brands in the
world, a solid history of double-digit returns on capital, and some of
the best per-square-foot metrics in retail. On the other hand, the
company has never been a consistent or impressive free cash flow
generator, and the stock is generally a proxy for the financial health
and spending of the upper class.

Seemingly no growth story can go on for too long without seeing some doubts and controversy creep into the name. In the case of VeriFone (NYSE:PAY), it seems like the bears and bulls
are increasingly at loggerheads. Bulls point to the ongoing upgrade and
sales potential at traditional points like gas stations and retail
stores, as well as the opportunity in the evolving mobile payment
market. Bears argue, though, that organic sales
growth isn't as strong as it seems, the upgrade cycle may be slow to
develop and mobile could be as much a threat as an opportunity.

There's quite a lot to like about Heinz (NYSE:HNZ).
No other company really comes close to matching their U.S. share in
condiments like ketchup or Worcestershire sauce, and the company has
enviable exposure to faster-growing emerging markets. That said, the
company's North American growth really isn't that much better than its
peer group and earnings are going to be pressured by increased spending
to grow the emerging market businesses. With that in mind, paying a
premium for Heinz's stock today seems like a bad move.

These aren't easy times for food companies, as rising input prices push up costs and shoppers rebel against price increases. Hormel Foods (NYSE:HRL)
seems to be holding up better than most, though, as the company's
expense control and increased focus on processed/packaged goods pays
benefits. Hormel looks like one of the best long-term stories in food
right now, but the valuation means that investors shouldn't expect
outsized capital gains from the shares.

There are a lot of things to like about Bank of Montreal (NYSE:BMO),
including its relatively solid credit quality, its strong dividend and
its willingness to look outside of Canadian retail and commercial
banking for future growth. What's not to like, though, is the relatively
stagnant near-term performance, the weakening credit metrics and the
weakening margins in both the American and Canadian operations. Although
Bank of Montreal looks undervalued on the basis of its likely future returns on equity,
investors considering these shares ought to appreciate the relatively
bearish sentiment out there and be ready to wait to see value.

One of the problems of having had a lot of success is that it can put
expectations at unreasonable levels. That would certainly seem to be a
risk for Costco (Nasdaq:COST),
as analysts, journalists and commentators have often heaped praise on
this warehouse format retailer. While the company may well find it
harder to squeeze more efficiencies from an already highly efficient
system, the international growth opportunity alone makes this a name
worth watching.

Friday, May 25, 2012

As Dell (Nasdaq:DELL)
is getting its clock cleaned in the wake of another disappointing
quarter, I expect to see a bevy of articles pointing to how cheap this
stock really is, and how smart investors should buy in today to reap the
great future gains.

I understand how it's easy to run the numbers on Dell and come away
thinking that. Unfortunately, value rarely drives tech stocks and
particularly not in the face of poor execution. Perhaps more than
anything else, Dell management needs to convince the Street that there
is some method to the apparent madness of its buyout binge and that the
company can actually gain and hold share in markets worth having.

Those tech companies that reported
their earnings as part of the regular cycle all seemed to be more or
less in good shape - numbers came in broadly in-line and guidance was
relatively positive. Since then, though, numbers and sentiment have
gotten a little wobbly, and maybe none more so than NetApp (Nasdaq:NTAP).
Although these shares still seem to have meaningful value, investors
have to ask whether the company's weak guidance is truly a byproduct of a
weaker market, or whether competition has ramped up and management is
unwilling (or unable) to acknowledge it.

Long-suffering Hewlett-Packard (NYSE:HPQ)
investors needed some good news, and they got it in the fiscal second
quarter. While HP's revenue and margin performance was better than
expected, as was management's updated guidance, there are still some
substantial challenges ahead. Years of underinvestment in R&D have taken their toll and showy moves like mass-firings don't change some of the most pressing problems.

While even very modest growth assumptions suggest HP shares are
undervalued, investors shouldn't underestimate the company's challenges.
Becoming a leader again in the teeth of competition from companies like
IBM (NYSE:IBM), EMC (NYSE:EMC) and Apple (Nasdaq:AAPL) isn't going to be easy, and the Street is seldom enthusiastic about tech stocks that can't post strong revenue growth.

Doing one thing well in retail is hard enough, but simultaneously
executing on multiple strategies with a high degree of skill is beyond
most management teams. To that end, Williams-Sonoma (NYSE:WSM)
at least merits a great deal of investor respect. Although the upside
in the stock doesn't look so impressive today, the potential to improve
sales growth and/or profitability could lead to more surprises down the
line.

There haven't been too many semiconductor earnings reports over the past few months where investors came away happy, but Avago (Nasdaq:AVGO)
seems like a real exception. But then, exceptional performance is not
really a new feature of the Avago story. While even more exposure to the
Apple (Nasdaq:AAPL) roller coaster could introduce more volatility
into these shares, the combination of solid technology, proprietary
products, market share gains and potential margin leverage make this a
name worth watching, if not buying outright.

There's no such thing as a perfect way to value any company, but cash flow analysis has long suggested that Take-Two Interactive (Nasdaq:TTWO)
isn't worth an investor's long-term attention. The stock's performance
over the past five years has backed that up, though it's worth noting
that Electronic Arts (NYSE:EA) has fared no better (meaningfully worse, actually) and there have been repeated trading opportunities. With
a continued pattern of poor earnings outside of blockbuster launches
and delays in bringing major titles to market, it looks like little is
going to change. Take-Two can be an interesting trading vehicle to play
big-name title launches, but it doesn't look like management has the
ability to make this company a consistent generator of free cash flow.

Words like exasperating and tortuous come to mind when thinking about
the so-called recovery in the semiconductor sector. Although analysts
dutifully continue to make their "it gets better" calls, it looks like
investors have lost patience with many of these names in the broader
market sell-off. As one of the highest-quality names in the business,
though, that is increasingly pushing Analog Devices (NYSE:ADI) stock to a potentially interesting price.

There's not much more digital ink to be spilled on the state of the
natural gas environment. Massive supply increases from basins like the
Marcellus have pushed prices down to uneconomical levels, and those
producers who can are switching over from natural gas to oil and
liquids. Unfortunately, while Ultra Petroleum (NYSE:UPL)
is one of the best-run natural gas companies, the company's reserve
base is almost completely natural gas and potential declines in
production and profits could pressure liquidity in the coming year.

Thursday, May 24, 2012

Making money has a way of patching over differences, but investors would do well to approach Best Buy's (NYSE:BBY) "outperformance" in Q1 with a healthy dose of skepticism. Not only are the fundamentals
here still pretty dodgy, but the company has only a limited window to
get its retailing act together. Although I believe the current price on
Best Buy shares is below most coherent down-side scenario fair values,
retail turnarounds are tricky and investors ought to demand a
substantial discount before taking their chances on this stock.

Campbell Soup (NYSE:CPB)
is still looking for the right recipe to boost its performance and has
been for quite some time now. In more than half a decade, this
well-known soup, beverage and snack company has grown its revenue by
less than $200 million (or about 2%), despite a series of strategies
targeting things such as new products, pricing and emerging markets.

It's
worth asking if Campbell Soup management is looking at the right
targets, even now. It may simply be that soup is no longer a growth
market and that product development and promotional efforts in this
category are a waste of money. Said differently, if companies like Kraft (NYSE:KFT) and Kellogg (NYSE:K) see their futures in snack foods and ConAgra (NYSE:CAG) and Ralcorp (NYSE:RAH) in generics, Campbell Soup may be wasting shareholder capital on strategies that just can't work in the long run.

It's an open question as to whether corporate executives really take
their duty to shareholders seriously, but that becomes an even more
relevant issue when a potential takeover comes into the picture. Georgia Gulf (NYSE:GGC) management may well be right that Westlake's (NYSE:WLK) buyout
bid undervalued the company's potential, but a great deal of that
potential is tied to both a housing recovery and an improvement in the
company's cost structure.

While the long-term potential value of Georgia Gulf definitely exceeds
the Westlake offer, it may be hard for the company to surpass that offer
in the short term.

The offshore energy market is tough enough in normal times, or whatever
passes for normal. Making matters even more challenging for Tidewater (NYSE:TDW)
have been the uncertain fate of the company's Sonatide JV, the need to
refresh the fleet, and the fractured state of the market in which many
small players will cut prices to gain business. While the service and
supply side of offshore
energy will probably always lag drilling, in terms of investor
interest, Tidewater could nevertheless be worth further investigation as
offshore activity picks up.

Commodity companies can do nothing to change the sometimes-devastating
cyclicality of their markets, but that same cyclicality gives investors
multiple chances to play the same stocks. Right now there's a great deal
of worry about global growth, and particularly growth in markets like
China, Brazil and Europe. Although no investor should fool themselves
about the risks involved, the fact that Teck Resources (NYSE:TCK) trades near tangible book value ought to be of interest to investors looking for potentially over-punished commodity stocks.

It's always something with Brocade (Nasdaq:BRCD).
Although takeover speculation gave a little life to the stock, the
ongoing problems in the ethernet business and the sluggishness of the
underlying storage market have sapped a lot of that momentum. Although
Brocade remains a tech stock that could deliver substantial returns if
it got all of its ducks in a row, progress towards that goal seems
inconsistent at best.

It turns out that there wasn't room for two big-box retailers in book
retailing or electronics, but that may not be the case in hardware and
home improvement retailing. Neither Home Depot (NYSE:HD) nor Lowe's (NYSE:LOW) are showing the same sort of troubles as Barnes & Noble (NYSE:BKS) or Best Buy (NYSE:BBY), perhaps because so many of the goods they sell make little sense as online orders.

While there may be room for two, it seems like Home Depot and Lowe's are
fated to play a lifelong game of leapfrog. Home Depot has solved many
of the problems that drove away customers and is now trying to drive
better savings through logistics. On the flip side, Lowe's looks like
it's in the middle of a problem-solving store reset program, and its
performance is lagging.

I won't beat around the bush - I don't think GameStop (NYSE:GME)
has all that much of a future as a retailer focused around game
consoles and software. There just isn't enough hardware business to
support the enterprise, and I see the ongoing march of digital gaming
eroding that lucrative used game business. None of this is new; this has
been the GameStop bear thesis for a while. The question, though, is
whether GameStop's business strategy points to a slower-than-expected
decline and whether there's still value in the shares.

Wednesday, May 23, 2012

With so many small/medium-sized
businesses (SMB) out there, it stands to reason that there are many
companies built around serving this market. Investors are likely at
least passingly familiar with names like Intuit (Nasdaq:INTU) and Paychex (Nasdaq:PAYX), but perhaps it's time to dig a bit into 8x8 (Nasdaq:EGHT) as well. After all, with phone services being a critical link in almost every business and 8x8's hosted VoIP services offering substantial savings, it would seem to be the right sort of company in the right place today.

This is not a good time to be a tech stock with analyst numbers heading lower, and it's not altogether surprising that Aruba Networks's (Nasdaq:ARUN)
stock is near its 52-week low. Although enterprise mobility is
admittedly not the highest priority for most IT departments, and the
company is seeing deceleration in Europe, this is still a small growing
tech company with the number two share position in an emerging growth market.

Tech investors don't just love hot growth stories, they adore them and will push up multiples
to eye-popping levels to have them. That's all well and good so long as
the growth holds up, but as these stories transition from growth to
execution, the stock returns can fall off sharply.

That leads me to my primary worries about Salesforce.com (NYSE:CRM). There's no arguing that Salesforce.com has built itself into a leading software as a service (SaaS) vendor, and a competitive threat to companies like Oracle (Nasdaq:ORCL), SAP (NYSE:SAP), Microsoft (Nasdaq:MSFT) and IBM (NYSE:IBM).
What I do wonder about, though, is whether there's a similar level of
intrinsic profitability in the business model and whether the company is
generating the real new customer growth that investors are paying so
much to get.

There's no such thing as an essential
retailer. Ask anybody younger than 35 about Montgomery Ward or Service
Merchandise and you're likely to get a blank look; the same will be true
of names like Mervyn's and Circuit City before too much longer.
Although Eddie Lampert's team is working hard to fix what ails Sears Holdings (Nasdaq:SHLD), it is increasingly looking like an uphill battle for a company that is being out-done on multiple retailing fronts.

Autodesk (Nasdaq:ADSK)
is a great company, but tech stock investors don't care nearly as much
about "great company" as they do "lots and lots of growth."
Unfortunately, Autodesk is something of a victim of its own success in
that regard, and the company is now seen as inextricably tied to overall
global macroeconomic growth. While a discounted cash flow
analysis suggests that Autodesk shares are significantly undervalued,
value-oriented investors need to know that realizing that value is going
to likely take quite some time.

Tuesday, May 22, 2012

Med-tech isn't much different than any other sector of the market;
when the growth goes, so do the investors. While the widespread
slowdowns in multiple key businesses have definitely dented Medtronic's (MDT)
recent growth, it's not as though the stock may seem to be an obvious
bargain at about three times trailing sales and more than eight times
trailing EBITDA.

That said, Medtronic seems to be seeing some
signs of life in major units like cardiac rhythm management and
cardiology, and the success of recent new product introduction bodes
well for some high-profile launches in the coming years. As a balanced
growth/value/income play on the healthcare space, Medtronic is looking
more interesting as a stock these days.

Eventually, even the best-run companies run out of levers to pull when it comes to producing more growth. Staples (Nasdaq:SPLS)
is a fine retailer in many respects, and I don't believe that there are
many (or perhaps "any") retailers that have built a quality

Unfortunately, Staples is stuck in an oversaturated
North American market that just isn't likely to grow fast enough, while
the ongoing economic problems in Europe have turned the international
operations into a loss-maker. While these shares do indeed look
meaningfully undervalued, they could stay undervalued for a quite a
while yet, unless management can sell the Street either on new growth
plans or a more aggressive cost-cutting strategy.

A company like Walmart (NYSE:WMT)
is not going to get cheap all that often. The company is widely-held,
well-known and generally appreciated as a play both on U.S. retail in
general and lower-income retail in particular. Better still, Walmart is a
virtual legend in terms of using logistics and competitive sourcing to
compete on price, and posts excellent returns on invested capital.

As of now, though, it doesn't look as though the bribery issue in Mexico
has created enough worry among investors to push these shares to the
point of serious undervaluation. Walmart remains a worthwhile hold, but
no particular bargain today.

Within the generally rotten shipping industry, containership
companies have looked a little stronger than average. That isn't because
the operating conditions are great (they're not), but because many of
these companies operate with long-term charters and large customers that
can weather the ups and downs of the business. While all of that means
that Seaspan (NYSE:SSW)
will very likely survive this trough in the market (and probably do
better than just survive), it doesn't necessarily make for the most
dynamic pick in the investor's universe.

It was just a day ago that I wrote, in reference to Agilent's (NYSE:A) probable M&A
strategy, "I would be surprised if the company targeted sequencing or
diagnostics." Well, color me surprised, as Agilent announced on the
morning of May 17 that it will be acquiring Danish oncology diagnostic
company Dako for $2.2 billion in cash.

Not only is this the
company's largest deal to date, but it represents an entry into a new
market - the multi-billion dollar world of diagnostics. While the growth
potential in diagnostics explains Agilent's interest (to say nothing of
the high-margin consumables sales that go with it), Agilent is paying a
hefty price for a company that badly needs to refresh its product
line-up and lags some very large competitors.

Do you look at Applied Materials (Nasdaq:AMAT)
and see a deeply undervalued tech titan selling equipment critical to
the long-term growth of the tech sector, or do you see a deeply cyclical
company still masquerading as a growth stock with a moat and technology
leadership? Perhaps I'm oversimplifying the debate on Applied
Materials, but it seems as though there's nothing like a "consensus
view" on this stock anymore. While that may spell opportunity to the
brave and nimble, it also means an above-average risk and volatility.

Figuring out the difference between "cheap" and "cheap for a reason" is
critical in improving investment returns, and that seems to be an
especially relevant consideration with Marvell Technology (Nasdaq:MRVL). While this chip company does look like an undervalued
story with its strong market share in markets like hard drive
controllers and TD-CDMA, somewhere an apparent undervaluation may well
be a reflection of the relatively poorer prospects for those markets.

Friday, May 18, 2012

Target (NYSE:TGT)
has built a relatively rare business - a discount store format that
people don't mind admitting that they patronize. The company may be well
past the former glories of the "Tar-zhay" days, and rivals like Kohl's (NYSE:KSS) and Trader Joe's
are following similar paths in the multi-line retail and food retail
formats, but it still produces reasonable returns. The question for
investors, though, is whether management has that spirit of "prudent
aggression" that will be necessary to drive the next leg of growth.

There are more than a few similarities between Wall Street and a spoiled
toddler. Not only do both expect someone else to clean up their messes,
but when they want something they want it NOW. Accordingly, I can't say
I'm all that surprised to see the widespread negative reaction to J.C. Penney's (NYSE:JCP)
first quarter results. While these results were disappointing and do
highlight the amount of work the new management team has to do, the fact
is that major business restructurings and repositionings don't happen
overnight.

Retailers aren't commonly considered cyclical stocks, but I think
they probably should be. Not only are clothing retailers vulnerable to
the economic cycle, but also the vagaries of merchandising and customer response to their product line up. Companies as varied as American Eagle Outfitters (NYSE:AEO), Abercrombie & Fitch (NYSE:ANF), Bebe (Nasdaq:BEBE) and Chico's (NYSE:CHS) have all shown this boom-bust pattern in their financial reports and it appears to be a "feature" of the industry.

Thursday, May 17, 2012

When last I wrote about Deere (DE),
I worried that aggressive growth assumptions might be setting investors
up for a correction. Since then, the stock has dropped about 10% -
helped, I'm sure, by the growing worries about seemingly every economic
region outside of North America.

I still have my worries about
whether North American farm demand is peaking and whether emerging
markets like Brazil, Russia, India, and China can take up the slack.
Although these shares are looking increasingly attractive from a cash
flow perspective, sentiment and fears of further economic sluggishness
are risk factors well worth considering.

What a difference a year (or three) makes. While the building superstores Home Depot (NYSE:HD) and Lowe's (NYSE:LOW)
have definitely taken their licks from the rotten housing market, these
companies are well past the worst of the storm. Not only have Home
Depot shares more than doubled from their early 2009 lows, but investors
have become optimistic to such an extent that the company is posting
substantially better results and still missing some estimates.

Wednesday, May 16, 2012

Large asset management companies can be tricky companies to monitor and
evaluate. Oftentimes, success is predicated more on identifying top
managers like Henry Kravis and George Roberts at Kohlberg Kravis Roberts (NYSE:KKR) or Warren Buffett at Berkshire Hathaway (NYSE:BRK.A, BRK.B)
and letting them do their thing - trusting that superior management and
investment identification will produce and accumulate value over time.

Potential is a dangerous word in the investing world, and the approximate cause of many capital losses. Small RF semiconductor player TriQuint (Nasdaq:TQNT)
has ample potential to grow, as nearly every device in our day to day
lives outside of the toaster now carries wireless functionality. The key
for TriQuint, though, is to diversify its customer base and actually
execute on that potential - something that past history suggests may be
difficult.

There are a lot of energy industry veterans who believe that only the
conservative survive, and it's not hard to see where they're coming from
- companies that have levered up and expanded aggressively during booms
have often been the ones to go bankrupt during the inevitable busts. Seadrill (NYSE:SDRL) is hoping to blaze a new trail, though, and the company's large new fleet should reap the best of what this upsurge in offshore drilling activity has to offer.

Even for companies with a solid record of performance, macro and sector
worries can dominate the story to a large extent. That would seem to be
the case with Agilent (NYSE:A),
as worries about the recovery in electronic test and measurement and
the health of the life sciences market weigh down the shares of what is
otherwise a very interesting and well-run company. Although Agilent may
not be the best pick for investors who want to make a fast buck,
investors with a long-term inclination should take a deep dive into this
story.

"Pay no attention to the man behind the curtain!"
L. Frank Baum, The Wonderful Wizard Of Oz

For a company that owes about 45% of its post-March 28 market cap to buyout rumors, biopharma Amylin Pharmaceuticals (AMLN)
continues to be stubbornly silent on the question of whether or not the
company is for sale, at what price, and potentially to whom. Management
not only refused to address the rumors on its first quarter conference
call, but likewise at the annual shareholder meeting.

That leaves
investors in a curious position - investors are ostensibly finding out
more about what's going on at Amylin from Bloomberg than they are from
their own management team. All we really know for certain is that Carl
Icahn decided to drop his suit against the company after a private chat
with the CEO; the rest is rumor and information from people "familiar
with the matter".

Tuesday, May 15, 2012

The best thing about Baxter (BAX)
is that so much of its business comes from oligopolistic markets with
pretty steady demand and reimbursement. The worst thing about Baxter is
that so much of its business comes from oligopolistic markets with
pretty steady demand and reimbursement.

In theory, Baxter is a
good stock to own during slow patches in the med-tech world because the
demand for profitable businesses like infusion, recombinants,
plasma-derived therapies, and other bioscience products doesn't drop
much with the economy, and Baxter reports growth while others contract .
On the flip side, the company has historically not looked to target new
growth markets, and the company's growth looks pretty pokey when the
sector revives.

With a few signs of life here and there in
med-tech, as well as oncoming competition in biosciences, it is worth
asking whether Baxter is still a name that investors want to hold today.

Experienced growth stock investors know to expect a few bumps and
bruises along the way, but the lack of growth at Summer Infant (SUMR)
is starting to put the company's very status as a "growth stock" in
serious question. Companies with a truly standout array of products find
a way to grow in even the toughest of times, and management's go-to
strategy of blaming a challenging retail environment is frankly wearing
thin.

I liked this stock about four months ago, and thought
aggressive investors could look past some of the issues with margins,
debt, and organic growth. At this point, I am wrong, Wrong, and WRONG
about this stock. Although I can still see a path to better results and
returns, it would frankly take a leap of faith to buy the stock here
ahead of actual improvement in organic growth.

The chemicals industry is a tough one in the best of times, with many companies like Dow (NYSE:DOW) largely dependent on global economic cycles and others like DuPont (NYSE:DD) having to spend billions on mergers and acquisitions or research and development to stay out of cutthroat commodity competition. While Aceto (Nasdaq:ACET)
addresses what looks like long-term growth markets (particularly
healthcare), investors need to be wary of a relatively poor history of cash flow generation as well as strong competition from China and India.

Friday, May 11, 2012

Analytics is an under-appreciated component of Big Data, but one that companies like IBM (NYSE:IBM) and SAS have targeted as key growth areas. Although Israel's NICE Systems (Nasdaq:NICE)
is perhaps better known for its surveillance and security applications,
enterprise interaction and transaction analysis looks like an
increasingly valuable addressable market for the company.

Investors are already well-aware that an upswing in commercial aviation is underway. Boeing (NYSE:BA) and Airbus are delivering more and more planes, and companies as diverse as General Electric (NYSE:GE), United Technologies (NYSE:UTX) and Alcoa (NYSE:AA)
have been talked about for their exposure to the commercial aviation
cycle.
While plenty is written on these commercial aerospace plays and
commercial airliners, the large airplane leasing companies don't get the
same attention. With attractive financing terms, improving lease rates,
and strengthening commercial airline trends, now may be the time to
consider a name like AerCap (NYSE:AER).

Some businesses just intrinsically swing from shortages to a surplus
over and over again, dragging suppliers through a roller-coaster of boom
and bust cycles. That's broadly true of semiconductor equipment
companies, and particularly true of MEMC Electronic Materials (NYSE:WFR)
- a leading supplier of semiconductor wafers. While the wafer business
is what it is (an inherently up-and-down business), bulls are hopeful
that the company's SunEdison solar business can be a long-term
sustainable growth driver.

Like its sister company Danaher (NYSE:DHR), Colfax (NYSE:CFX)
has its own way of doing things, and if Danaher can be thought of as
something of a blueprint, long-term shareholders in Colfax will likely
look back in a few years' time and be quite happy with their holding. In
the near-term, though, worries about the health of the global
industrial market, and Europe in particular, could make these shares
volatile.

Investors could be forgiven for taking a quick look at CVD Equipment (Nasdaq:CVV),
seeing that it's involved in chemical vapor deposition (CVD) equipment,
and just concluding that it's another semiconductor equipment company.
What makes this an interesting company, though, is that it's taking
well-understood technology that has indeed long been central to
semiconductor manufacturing and is looking to apply it to a host of new
industries and products.

Thursday, May 10, 2012

Investing in companies that produce agricultural products is almost
always dicey; few of these companies can control either end-market
pricing or input costs. Not surprisingly, companies like Dole (NYSE:DOLE), Fresh Del Monte (NYSE:FDP) and Chiquita (NYSE:CQB)
don't score especially high on measures of long-term economic value
creation. That said, aggressive investors can often do reasonably well
in these stocks by trading the huge swings in sentiment.

How bad is the coal market? Some electrical utilities are paying coal
companies *not* to ship them any more coal (negotiated deferrals).
Couple that with rapidly escalating costs and heavy regulatory burdens
on underground mining and a wobbly market for coking (metallurgical)
coal, and Patriot Coal (PCX) is in the same leaky boat as Peabody (BTU), Arch Coal (ACI), and Walter (WLT).

There's
definitely value at Patriot coal - at current production levels,
Patriot's reserves will outlive most of us. The relevant questions for
the stock, though, revolve around whether the market can recover fast
enough to forebear a difficult liquidity situation and whether the U.S.
government will let miners like Patriot stay in business.

Wednesday, May 9, 2012

Disney (DIS)
is one of those remarkable companies that seems to have an uncanny
knack for figuring out what its customers want and then giving them even
more of it. Sounds simple, I know, but not many companies have wracked
up lifetime gains of nearly 47,000%. That said, Disney is a surprisingly
volatile stock and brand value alone won't save investors who buy at
the wrong times - investors who bought in 14 years ago are sitting on
just 19% gains (excluding dividends) and looking up longingly at the
S&P 500's returns over that time period.

With that in mind,
Disney's solid performance in Q1 and strong stock may be a sign that new
investors should cool their heels a bit before taking the plunge with
new money.

There's no question that Teva Pharmaceuticals (TEVA)
rewarded long-term investors with years and years of growth as it
became the world's largest generic drug manufacturer. The biopharma
world has changed, though, and so has Teva. Now branded companies like
Novartis (NVS) and Sanofi (SNY)
are in generics, and generic companies like Teva are in branded drugs.
And just for good measure, a few outliers like Endo Pharmaceuticals (ENDP) add devices to the mix, while others like Abbott (ABT) and Covidien (COV) look to split and spin-off their drug businesses.

What's
the point? Well, mostly that Teva probably has to start thinking more
and more like Big Pharma if they want to continue to grow the business.
It's hard to imagine that there's much buying left to do in the generic
space (apart, perhaps, from a few select deals in specific markets), but
there's plenty that the company could do in terms of buying branded
drug/biotech businesses, or in-licensing compounds. Given the expense
control management is showing, the synergy potentials alone could make
M&A a viable path to growth.

Selling gas and diesel is an intrinsically low-margin business - which probably explains why so many major integrated oil companies like Exxon Mobil (NYSE:XOM) and BP (NYSE:BP) sold out of the business years ago, and why companies like Kroger (NYSE:KR) and Walmart (NYSE:WMT) use fuel sales more like promotions and loss leaders.

That doesn't bode well for TravelCenters of America (AMEX:TA),
one of the largest operators of travel centers (or truck stops, if you
prefer) in the United States. While fuel resale is always going to be a
difficult, low-margin business, EBITDAR and site-level operating expense improvement suggests that a better multiple could be in order for this stock.

It's hard enough to make hay competing against well-run businesses like McDonald's (NYSE:MCD),
and it's not made any easier by the intense price and brand competition
that goes with the restaurant industry. What makes matters even worse
for Wendy's (Nasdaq:WEN)
is that the company is trying to establish itself as a "premium quick
service restaurant (QSR)" in a market that just doesn't seem to want to
pay premium prices for hamburgers and quirky sides like baked potatoes.

It's not especially fun to watch a one-time blue chip lose its luster, but there's no point in denying that that's what's happening with Sysco (NYSE:SYY)
right now. While Sysco is still the dominant food distributor in the
country, that dominance seems to be worth less and less as investors see
the limits of the company's ability to fight against the tide. This
company will have its good days again, but I would suggest that the
premium that the company has long enjoyed for its market power and
stable growth should be re-evaluated.

Tuesday, May 8, 2012

With crude oil production increasing across North America and
differentials going both wide and volatile, these are pretty interesting
times to own pipeline, storage, and terminal facilities. As one of the
best in the business, Plains All American (PAA) continues to reap the benefits of the network it already has, while also putting even more money into its expansion plans.

Volatile biotech Dendreon (DNDN)
has been a painful lesson for some investors that there's a big
difference between good technology and a good stock. The company
deserves, and gets, plenty of credit for developing the first-ever
cancer vaccine, but serious questions about efficacy, cost-benefit,
competition and intrinsic profitability have lingered from the moment of
approval Now that repeated sales disappoints have knocked the stock
down significantly over the past year, the stock may at last be priced
with more rational expectations in mind.

Investors who have followed med-tech for a long time probably knew that this day was coming -- highly-valued MAKO Surgical (MAKO)
disappointed the Street with its quarterly results, and the
consequences in the market are going to be severe. Only zealots believed
that MAKO would grow with no interruptions or stumbles, and while the
valuation is still demanding, this looks like a potential opportunity
for aggressive investors.

looked a little expensive coming out of fourth quarter earnings
and the stock was weak through March and April. Tyson's second quarter
earnings were better than expected, and the company's progress on margins
is laudable. That said, the Tyson Foods story really hasn't changed all
that much and the stock is not an especially compelling bargain today.

Rofin-Sinar Technologies (Nasdaq:RSTI) has often been a quality small cap company that, despite a lack of institutional support (big-name sell side coverage), has often traded at pretty robustpremiums.
With key industrial markets in Germany and China struggling, though,
these shares have had a rough go of it and have come down in value
substantially. While investors should not ignore the downside of further
global economic stagnation, now may be a good time to get up to speed on a stock that should be highly leveraged to a recovery in those markets.

April's 2012 rail data looks like more than a little bit of history
repeated. While the healths of the railroads and the economy have
generally been pretty closely correlated, some of that linkage is
breaking down. With coal demand plunging, but most other core industrial categories doing well, this may be a case where rails struggle to replace the high-margin coal revenue while the rest of the economy continues to grow.

Monday, May 7, 2012

There's a long list of companies out there where investors are hoping
that carriers finally get back to spending this year, a list that
includes Alcatel-Lucent (NYSE:ALU), Adtran (Nasdaq:ADTN), Juniper (NYSE:JNPR) and Acme Packet (Nasdaq:APKT).
While Acme Packet enjoys good share in the session border controller
market (SBC) and ought to benefit from adoption and migration to Voice
over LTE (VoLTE) and IMS, bears argue that competitors and alternative technologies will steal much of that potential.

Investors canvassing the chip sector for ideas today have to make a tough choice - go with quality names like Broadcom (Nasdaq:BRCM) and Qualcomm (Nasdaq:QCOM) and pay premiums that may limit capital gains, or go with cheaper names like Silicon Labs (Nasdaq:SLAB)
that have more questions and yellow flags. Broadcom remains a quality
play on the mobile explosion (and combo chips in general), and still
looks like a reasonable candidate for investors looking to add tech to
their portfolio.

In the maelstrom that is quarterly earnings season, nobody can follow
everything. With that in mind, I'm coming back around to take a look at
the German mega-conglomerate Siemens (SI).
This is a frustrating stock in many respects; while the company beat
estimates, they were lower estimates and although the stock looks just
too cheap on a long-term basis, it's difficult to argue that investors
should own this today instead of General Electric (GE) or ABB (ABB).

Global utility company AES (AES)
is still waiting to see some of the tangible benefits of its multiyear
restructuring. AES has gotten a lot more realistic about its
international growth plans, added the stability of a regulated utility,
and sharpened its focus on generating (and distributing) cash flow
instead of a growth-at-any-cost philosophy. Nevertheless, the shares
have not exactly soared on this transition to the new AES.

Swiss drug giant Roche (RHHBY.PK)
hasn't had the best run of luck lately. Having moved past significant
issues with the Avastin franchise in 2011, the company failed in its
efforts to acquire Illumina (ILMN)
and now investors have to digest the surprising Phase 3 failure of its
cholesterol drug dalcetrapib. Not only does this clinical failure remove
a fair bit of the wind from Roche's sails, but it should also improve
the outlook for Merck (MRK) and Lilly (LLY).

Commentators talk about "the transports" as though they were an
undifferentiated block of companies that all move together. Really,
nothing could be further from the truth. While railroads, trucking,
shipping and air cargo all involve moving things from A to B, the
details differ in crucial ways.

Said another way, there's precious little correlation between companies like Old Dominion (Nasdaq:ODFL), Union Pacific (NYSE:UNP) and Atlas Air (Nasdaq:AAWW), and shares of the latter have languished on a host of worries including the state of the Chinese economy. With better-than-expected results in the first quarter though, and an apparent undervaluation, it may be worth taking a closer look at these shares as a second half rebound story.

Veteran analog chip companies like Analog Devices (Nasdaq:ADI) and Linear Technology (Nasdaq:LLTC) are often praised and prized for their strong gross margins, and the new kid on the block ON Semiconductor (Nasdaq:ONNN) would certainly like to join their ranks. While ON has made solid progress in integrating its Sanyo acquisition,
the fact remains that the chip sector recovering is proving to be a
slow and uncertain one. Although I think ON has a good chance of
eventually delivering the goods, and valuation is not terribly demanding, investors are going to need to have some patience with this one.

It seems like every quarter only serves to heighten the anxiety and uncertainty around Atmel (Nasdaq:ATML).
Despite leading touch controller technology, the company seems caught
up in a market where price rules and customers swap slots freely.
Although this semiconductor stock could be a great rebound candidate if
the revenue outlook firms up, it's now firmly a "show me" stock.

Outside of a few notable stories like KLA-Tencor (Nasdaq:KLAC) and FSI (Nasdaq:FSII), this hasn't been an especially good environment for companies selling equipment into the semiconductor space. While FormFactor (Nasdaq:FORM) has been nearly left for dead, there may at last be some reasons for hope in the company's memory probe card business.

Friday, May 4, 2012

You would think that a company posting roughly double the industry
average revenue growth rate and solid margins should be one of the more
highly-valued companies in the sector. Alas, that's not the case with
Covidien (COV).
While I don't want to leave readers with the impression that Covidien's
stock has been completely ignored or trades at an insultingly cheap
multiple, I'm nevertheless surprised that investors haven't shown more
love for one of the more durable growth stories in med-tech.

The great thing about turnaround and greenfield growth stories is that
they can both succeed even if their core addressed markets are facing
some challenges. Take the case of trucks and off-road vehicles. While
Caterpillar (CAT), Cummins (CMI), and Eaton (ETN)
have all worried investors to some extent about the health of their
respective markets (particularly in China and Brazil), parts and
components companies like Titan (TWI) and Commercial Vehicle Group (CVGI) continue to out-execute their plans.

For reasons that don't make a lot of sense to me, investors continue to
reward a host of under-performing food companies with pretty robust
multiples. I understand the value of a good brand, and I don't fault
investors for hanging on to Coca-Cola (KO) or PepsiCo (PEP)
even though neither are cheap, but I wonder why so many investors are
happy to pay premiums to hold companies experiencing uncontrollable cost
inflation and increasing elasticity from consumers.

As I've said recently in relation to McDonald's (NYSE:MCD), Coca-Cola (NYSE:KO) and Nestle (OTCBB:NSRGY),
top-notch companies are a mixed blessing for investors - great to hold
for years at a time once you own them, but very hard to ever buy at a
notable discount. Automatic Data Processing (Nasdaq:ADP)
fits that bill as well, as even the most negative or bearish analysts
still seem to go out of their way to affirm their respect for the
company, its strategy and management.

Warm winter weather and low natural gas prices have gutted the coal market in the United States. Utilities like American Electric Power (NYSE:AEP) are switching over as much production to natural gas as they can, while railroads from Union Pacific (NYSE:UNP) to CSX (NYSE:CSX) are reporting sharp drops in coal carloads. That is leading coal producers like Peabody Energy (NYSE:BTU) and Cloud Peak Energy (NYSE:CLD) to cut production, and leading investors to fret about the near-term outlook for EBTIDA.

One quarter ago, I opined that Archer Daniels Midland (NYSE:ADM) looked like a good stock for patient investors. With the stock having doubled the return of the S&P 500 over that brief time period, so far so good. ADM's business is always going to be a volatile,
commodity-driven enterprise, but the company does earn long-term
economic returns on an asset base that would be extremely difficult (and
expensive) to replicate.

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I started this blog as a way of archiving my writing for sites like Investopedia, as well as posting some thoughts on the markets, stocks, or whatever else strikes my fancy.
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You can reach me at tuonela (dot) fool (at) gmail (dot) com

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This blog represents the opinions and views of its author.

Information is taken from sources believed to be reliable but no warranty or guarantee is made with respect to accuracy.

Investing involves risk and requires proper due diligence. In no way should a reader should presume this blog represents personalized financial advice or is a substitute for proper due diligence. The author expects you to be enough of a grown-up to realize this.